Samarco said to be in restructure talks

The Samarco iron ore mine in Brazil – a joint venture Vale (NYSE:VALE) and BHP Billiton (NYSE:BHP) – is looking to restructure $1.6 billion in loans following a deadly tailings dam burst that has halted operations since November.

Samarco Mineracao has hired JPMorgan Chase & Co. as it discusses restructuring debt with banks while BHP is being advised by Rothchild & Co and Vale by Moelis & Co, according to a Bloomberg report that cites unnamed source familiar with the matter:

"Samarco reported about 15 billion reais in debt ($4.4 billion) at the end of 2015 and 1.8 billion reais in cash. Its obligations include about 328 million reais of payments this year and 324 million reais in 2017, the company said. While most debt is held with international creditors, guarantees were provided by local lenders including Banco Bradesco SA, Banco Votorantim SA and Itau Unibanco Holding SA, Samarco said."

At 30 million tonnes per year before the disaster Samarco's pelletizing operations supplied roughly one-fifth of the seaborne trade in the premium raw material

Last week Reuters reported that the mine is unlikely to resume operations before the end of the year. Benedito Waldson, the company's head of human resources told Reuters the uncertain timing of a new licence from the South American nation's environment authorities to restart operations "had forced the company to move to lay off over 1,000 workers."

At 30 million tonnes per year before the disaster Samarco's pelletizing operations supplied roughly one-fifth of the seaborne trade in the steelmaking raw material that attracts a premium price over iron ore fines and lump ore. Earlier Samarco said that should the mine reopen output would likely be capped at 19 million tonnes per year.

The benchmark Chinese import price for iron ore fines held steady at $50.60 on Monday, up more than 35% from a near-decade low struck in December according to data supplied by The SteelIndex.

A Brazilian judge last week dismissed a civil lawsuit brought by the National Humanitarian Society in December seeking environmental and property damages amounting to billion reais (roughly $5.8 billion) against Samarco, in which Vale and BHP each own 50%.

Another civil lawsuit brought by Brazilian prosecutors for 155 billion reais (around $45 billion today) against the two companies and Samarco, Brazil’s federal government along with the Minas Gerais and Espirito Santo state governments is still being considered. Demands include an upfront payment of $2.2 billion.

In March Vale and BHP reached a deal with Brazilian authorities and the mine owners agreeing to pay an estimated 24 billion reais or $6.2 billion spread out over several years. Samarco committed to providing $1.1 billion through 2018 into a fund for clean up costs and amounts between $200 million and $400 million to 2021.

The disaster in Brazil’s Minas Gerais state that killed 19 people caused sludge to wash downstream into neighbouring state Espírito Santo through remote mountain valleys reaching the Atlantic ocean 600 kilometres away.

In January BHP said the tailing waste spill was much smaller than previously determined. The volume of tailings material released when two dams were breached was about 32m cubic metres. Initial estimates were put as high as 60m cubic metres. Samarco also found that approximately 85% of the released tailings were retained within 85 kilometres of the Fundão dam.